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Last year, without lowering the high bar that Caremark set for director liability, the Delaware courts signaled their expectations about effective board oversight over “mission critical” risks by taking the unusual step of allowing two Caremark cases to proceed beyond the motion to dismiss stage. In 2020, the Delaware courts reinforced this message by denying motions to dismiss Caremark claims relating not only to board oversight of a key regulatory risk, consistent with the earlier cases, but also (in the context of egregious alleged facts) to board oversight of effective financial reporting, a risk all public companies face.
The continued emphasis on “mission critical” risks by the courts has coincided with the extraordinary and tragic events of the past year, which revealed fissures in our society and heightened calls for boards to reconsider their company’s corporate “mission” and its impact on a broader range of stakeholders. There is now an even stronger impetus for directors to use a wide lens in considering what risks should be deemed “mission critical” for their company. For most, if not all, companies, that means risks relating to employees, including racial and gender equity and overall safety and well-being, deserve a prominent place on the board’s oversight agenda for 2021 and beyond.
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*Published as a part of a full report by NACD.